Technology will impact various players in e-payment ecosystem -- consumers, merchants, payment service providers and banks
In Malaysia, small merchant segment will likely experience the biggest growth for e-payments in 2013
PAYMENT systems provider GHL Systems Bhd believes that industry throughout Asean will experience above-average growth over the next two to three years as a result of developments in technology.
“Technology has clearly driven the evolution of faster and safer electronic payments. We have come a long way from the days when we used manual credit card swiping machines to produce carbon copies of credit card slips,” its group chief executive officer Raj Lorenz (pic).
“Today, credit card information is transmitted electronically to the card-issuing bank in seconds for approval. Also, the data is encrypted before it is transmitted thereby ensuring that the data is safe.
“These developments have helped boost consumer confidence and encouraged the wide usage of electronic payments,” he said.
Advances in technology would impact various players in the e-payment ecosystem in different ways. “Consumers, merchants, payment service providers and banks will all experience the far-reaching effects of developments in technology,” he said.
“From the consumer’s perspective, the large number of smartphones opens up the possibility of using such phones to effect payment, accept loyalty points and record transaction data.
“Payment service providers (PSPs) will be positively affected by the shift towards cloud or server- based computing. In simple terms, cloud computing enables the complex aspects of processing payment transactions to be done on a back-end server rather than the front-end EDC (electronic data capture) terminal.
“What this simply means is that with the use of cloud computing, EDC machines will use less powerful processing and memory chips. This, in turn, results in much lower EDC costs,” Raj said.
He said some PSPs in the United States and other parts of the world have taken advantage of this cost reduction to provide payment services to merchants that were previously too small to be addressed.
Meanwhile, central banks in Asean countries are focusing on enabling PIN-based ATM cards to be used to make payments.
“From the merchant’s perspective this means that a much larger pool of consumers will now be able to make electronic payment.
“Typically, less than 20% of the consumer base in Asean is eligible to apply for a credit card. ATM cards address a much broader market. In countries where there is a higher ‘unbanked consumer segment’ such as Philippines and Indonesia, prepaid cards have evolved to address consumer payment needs,” Raj said.
From the banks’ perspective, technology shifts will trigger demand for greater efficiency and price reduction. Banks will likely focus on driving card usage and new product development to increase their value proposition to merchants, and to increase their earnings.
“Concurrently, they will also likely outsource merchant services to PSPs that are large enough to deliver high service levels at a low enough unit cost,” said Raj. “Today, many of the global and regional banks have already gone down this route. As technology drives efficiency, these trends will become more and more self-evident.”
Raj said that Malaysia recognized the importance of e-payment in enhancing economic efficiency.
In September, the first of the Digital Malaysia slew of entry point projects (EPPs) to go live was the ‘Enabling ePayment for SMEs and Micro Enterprises’ EPP, which aims to bring e-payment access to smaller merchants and the man on the street.
According to the Financial Stability and Payment Systems Report 2011, Bank Negara Malaysia has targeted 200 e-payment transactions per capita, 30 debit card transactions per capita, and 25 point-of-sale terminals per 1,000 inhabitants by 2020.
“The small merchant segment will likely experience the biggest growth for e-payments in 2013 due to two main drivers,” said Raj. “Firstly, the growth of ATM card payments, and secondly, saturation in the existing top and middle market segments will cause banks to partner with PSPs to enter the small merchant market.”
He expects that ATM card payments will become more widely used and small merchants serving the mass market will start accepting this type of payment.
Within the small merchant segment, he believed that the industry segments likely to see higher conversion to e-payment include consumer retail, food and entertainment outlets. “Today, such small merchants accept only cash and therefore, there is potential for conversion to the broader based ATM card payments,” he said.
Aligning with banks
To capitalize on the projected economic growth in Asean, GHL intends to align with local banks and regulators. It company plans to focus on playing an intermediary role between banks or other third parties like telcos and the end-consumer.
It will do this in emerging payment products (not necessarily credit card related) that makes sense for the markets it operates in, the company said in a statement.
For countries that have mostly unbanked populations, GHL will focus on prepaid cards, while for countries with good infrastructure and a sizeable banked population, ATM and credit card payments will be its main product.
Concurrently, the company will focus on merchant segments that are underserved in order to gain rapid market share. In these markets GHL intends to leverage its size and scale to deliver the best level of service at the best price.
“We have and will continue to invest in R&D to keep pace with shifts in technology. Given that we are already producing both payment devices and software, we are well positioned to adapt to changes in the environment,” said Raj. Our wish is for every store to accept ATM or credit card transactions.”
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